Investment fear risky business for Canada's conservative culture

Deloitte's Bill Currie speaks to FP about the results of its latest productivity report and the urgency behind tackling the cultural issues impeding Canada's ability to effectively compete on a global level.

One of the most contentious debates surrounding Canada’s poor productivity performance is that of culture. Many contend Canadian businesses lack boldness, ambition and don’t have the risk tolerance to compete with the U.S. and emerging markets. On Monday, Deloitte released a report entitlted The Future of Productivity – Clear Choices for a Competitive Canada, which highlights Canada’s strikingly low risk tolerance. Bill Currie, Deloitte Canada’s vice chair and Americas managing director, spoke with the Financial Post’s Dan Ovsey in advance of the report’s release to discuss what Canada needs to do become more globally competitive and more nationally productive. Following is an edited transcript of their conversation.

Bill Currie

Q: Risk aversion in Canada’s business community has been an issue for some time now. Do you see the trend as getting worse or better?A: There are spots where it’s getting better. We did our first report a year ago and did a quantittive survey. We wanted to test quantitatively if Canadians are more risk averse than Americans. We found that a U.S. risk avoider behaves the exactly as a U.S. risk taker. But a Canadian risk avoider really avoids risk. They don’t invest in their business; they have less R&D spend; they like government support to make investments; they’re much less entrepreneurial than what you’d find (in the U.S.).

What we see is some uptick earlier this year in investment in machinery and equipment; still not good, but getting better. There are some signs (of improvement) but I wouldn’t call them big themes that Canadians are starting to take on more risks.

Q: At the risk of sounding crude, what’s the deal? Are we just wimpy? Why can’t we seem to be as ambitious in terms of our business growth as our U.S. counterparts?A: I think we’re fat and happy. We are affluent. We feel comfortable. The productivity issue that we document and talk about, that’s a long-term thing and it will impact our children more than it impacts us. And, for many Canadians, including business owners, they don’t feel the need to go and take risks that may be uncomfortable for them. Again, that’s not all Canadian businesses, because there are a ton of Canadian businesses that are absolutely out there. But, for those at home, they had a 65-cent dollar; they have the largest economy in the world as their trading partner with a free-trade agreement; they have — depending on the industry they’re in — barriers to entry; and, they have some tax support if they’re small businesses. So, it’s a pretty comfortable place to be and I think that there’s not a lot of reason for people in that situation to get uncomfortable and go take risks?

Q: What’s going to make them uncomfortable enough to go take risks?A: If we as a country focus on things that expose people to competitive intensity, when we have to compete, Canadians (will step up). If you look at the retail sector in Canada, over the last 25 years, it’s been exposed to world-class competition. We lost some retailers — Eaton’s and some others — but Canadian Tire today is not my father’s Canadian Tire. That organization competes head to head with Walmart and is still in business and still profitable and still growing. If you look at Canadian exporters, they’re more productive, they’re higher growth because they expose themselves to competition in markets outside of Canada. While I understand there are political realities — and you can’t remove all protections overnight – where we provide protection, it’s actually not helpful for us because we don’t get competitive intensity and we end up being comfortable instead of competitive.

Q: How do we break out of this sort of funk we’re in?A: Government has been actively thinking about this and I think they’ve done good things. I do think we could focus policy on things that drive growth and productivity. We find that high-growth companies employ way more people; drive way more revenue per employee; they’re much more productive. Things that support growth, I think, are actually valuable and should be where government leads. I also think things that support export are hugely valuable. We think of ourselves as an export nation, but we’re not really. We export to the U.S. at relatively low levels compared to the size of our economy, and we under-perform in exporting to developing countries, including the BRIC countries and we need to get better. I think governments are generally working hard to get free trade agreements. We recently saw that with Colombia, which I thought was great. We need to see more of those.

Q: One would think that as businesses grow, their aversion to risk would diminish. In fact, your report shows the opposite seems to be true. What’s the explanation for that?A: I don’t know that I can explain that necessarily. It’s just a fact. The hypothesis is that there’s a comfort level. One of the things — and this is totally qualitative — that you hear over and over is that Canadian business people cash out. They sell the business and take their relative windfall and move to Florida and retire, whereas U.S. business leaders are often serial entrepreneurs. That’s not to say we don’t have serial entrepreneurs, because we do. I’m just not sure that we have people as driven — over a long period of time — to create huge amounts of wealth and who are entrepreneurial and put their business on the line every day, which is a common attitude in the U.S.

Q: Thirty years ago, the business community argued that government needed to do more to spur investment, and since then governments of all stripes have been making significant strides towards that. Yet, it doesn’t seem to have had much impact on our productivity levels. Is it fair then to suggest that this is still a public policy issue, or is it really more of a business-culture issue?A: There are cultural issues. The cultural issues are really hard to fix becuase you can’t fix culture in a quick way. Some of that comes down to an education system. We believe that in every part of our education system, we should have an orientation that includes business and economics, which today it doesn’t.

The other thing is that we created a country through a series of compromises because it’s a confederation. Every time we brought in a province, we made concessions as to what would be a provincial right and a national right. Today we compete using our confederation, which for historic reasons made sense at the time, but 150 years later we compete with countries with national strategies that are very competitive. We live in a global world, and not only do we have borders between ourselves and other countries — which are often not helpful — we have inter-provincial borders, we have 10 securities regulators, we have no national energy program. You could walk across the border between Quebec and New Brunswick and the cost of electricity goes up 1.5 times.

There are a number of things, which are really, really hard to fix but we actually have to start having conversations about having a national strategy that will allow us to become more competitive globally and more productive. Unless we get to that point, the government can do all kinds of things — and some businesses will engage — but we have a number of inherent constraint, which limit our competitiveness and those things are a problem.

Q: When you look at the investment levels by company size, in each one of those charts, Israel was at the top of the list. What is it about Israel, from either a policy or culture perspective, that allows it to be at the top of those lists, while we fall fifth or lower?A: They’ve got policy and some natural attributes. Israel is a young country and everyone there immigrated there. I think that they have an intense focus on innovation that’s supported by government policy and also supported by a lot of venture capital and angel financing, which we are weak at and is a very significant issue here. Canada actually creates a huge number of startup companies — more than Israel. The challenge we have is that we don’t sustain them. Under-five-year companies, we would be on par with Israel. Once you get to five years, we are last and those (Israeli) companies are to sustain those growth businesses through their cycles to be mature growth companies and drive a huge amount of growth in their economy.

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